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Market updates, news and insights for the week ending 13th July

Publish date: 13th July, 2018

News: Nifty scales the 11,000 mark during the week

Investment perspective:

• The sharp rally in the Nifty was despite the negative cues coming from the global markets including a worsening trade war between the US and China.
• The rally has been predominantly led by a handful of heavyweights which have outshone including Reliance, HDFC, HDFC Bank, TCS, Hindustan Unilever and Kotak Bank.

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News: News: India crosses France to become the 6th largest economy on real GDP

Investment perspective:

• During the last four years, India crossed Canada, Russia and Brazil in terms of real GDP as the down cycle in oil and other commodities took its toll on these economies.
• While India’s per capita GDP at around $2000 is just 1/20th that of France, it remains that India is the only large nation to have doubled its GDP since the Lehman crisis.

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Indian economy and market watch – A quick update

News: Idea will have to provide $2 billion for unpaid spectrum dues of Vodafone

Investment perspective:

• This pertains to the outstanding spectrum share that Vodafone had not paid to the government while it consolidated its regional group companies.
• The approval of the merger is contingent on this provision by Idea and they have been asked to provide the sum of Rs.13,800 crore through a mix of cash and bank guarantees.

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The Reliance Jio impact on Indian telecom

Telecom sector research: A new low

News: CPI inflation comes in higher at 5% for June 2018

Investment perspective:

• Interestingly, the higher inflation has not been spurred by food inflation but by fuel and lighting. With crude prices elevated this pressure on the inflation is likely to continue.
• The RBI had signalled at a likely rise in inflation and the real impact will only be visible once the impact of the higher Minimum Support Price (MSP) gets factored post Kharif.

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News: IIP growth for May 2018 comes in lower at 3.2% against 4.9% in April

Investment perspective:

• The sharp fall in IIP was driven largely by manufacturing output slowing to 2.8%. Manufacturing has nearly 70% weightage in the overall IIP.
• The indications were already there in the weaker than expected core-sector numbers for May. Core sector is a good indicator of IIP as it constitutes for more than 40% of the IIP.

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Sector research: Cement Industry

Sector research: Metals and Mining

News: TCS flatters the street with strong growth in top-line and bottom-line

Investment perspective:

• The big take-away from the TCS results was the sharp revival in the BFSI business. That was the business that saw traction after some time, apart from its strong hold on digital.
• TCS already enjoys a premium of 10X on P/E valuations versus Infosys (an all-time high). A lot will predicate on how the markets interpret the quarterly results of Infosys.

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News: Mark Mobius sees trade wars as a precursor to a financial crisis

Investment perspective:

• According to Mobius, the trade war may be more of a game of power and one-upmanship but the implications for trade and currency may end up in a financial crisis
• However, Mobius remains positive on emerging markets like India for their large domestic markets, although he still expects a correction of up to 10% in most EMs.

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News: NSE FMCG index has touched an all-time high

Investment perspective:

• Actually, the FMCG index may still be misleading as ITC has a weightage of over 40% in the FMCG index. That is the one stock that has underperformed the sector.
• Stocks like Hindustan Unilever, Britannia and Godrej are all quoting at their historic highs and have benefited from rural consumption, higher incomes and the GST effect.

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Factors affecting the Indian consumer sector

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News: Procurement could be the big challenge in implementing MSP

Investment perspective:

• The government, even after announcing the sharp hike in MSP, will largely depend on efficient procurement to make MSP a success as states hold the biggest stake.
• In the past, it has been seen that despite favourable MSP announcements, farmers ended up getting hit by poor implementation of procurement at the state level.

News: Samsung to set up largest mobile facility near Noida in Uttar Pradesh

Investment perspective:

• The capacity to fabricate 120 million mobile phones will make the Noida factory the largest manufacturer of mobile phones in the world.
• This came as part of a series of long term agreements with South Korea. India and South Korea also decided to expand their annual trade to $50 billion in the next few years.

Related reads:

Why India should be concerned about the US-China standoff?

News: PSU banks may raise Rs.50,000 crore in the current fiscal year

Investment perspective:

• Indian PSBs need to spruce up their balance sheets so that they can meet capital adequacy norms and also create the base to lend to borrowers.
• However, the NPA cycle will have to substantially bottom out so that the NCLT measures can be really effective in enhancing the solvency of the PSU banks.

Related reads:

Sector research report on banking

Research note on IndusInd Bank

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